U.S. companies have had a long love affair with debt, and Washington has tacitly approved. Although the tax benefits are not the only driver of corporate America’s preference for loans — cheap rates and corporate strategy, as in Macy’s case, are other major factors — the tax code often tips the scales toward using debt for deals or for expanding a business.

Over the past generation, debt in America has exploded, becoming a way of life in nearly every sphere of society. And the tax code has been its handmaiden. Home buyers, towns and corporations all enjoy tax breaks that grow as they borrow more. Indeed, federal officials have found that the deductions for business debt are so generous that the government is, in many cases, essentially paying companies to borrow.

The surge in borrowing has opened new markets and financial industries. It has also at times powered economic growth — for instance, the boom preceding the housing bust — and activities that wouldn’t have been possible under other conditions. Commercial developers build projects they otherwise wouldn’t. Private equity firms are able to buy out companies with huge sums of borrowed money. Big banks that lend out all this borrowed money have come to play an outsize role in the economy.
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“The tax code is interfering dramatically with the choice of how you finance and how you deliver returns in the corporate sector,” said Douglas Holtz-Eakin, an economist who heads the American Action Forum. “Why would you build into the tax code a permanent bailout for corporate debt-financed investments?”